In Oracle case, Microsoft cites expansion worries

SAN FRANCISCO--Even a software giant like Microsoft can't be a big presence in every market, a company executive said Thursday in the Oracle antitrust case.

In a videotaped deposition, Orlando Ayala, senior vice president of Microsoft's server software and other products for small and midsize businesses, reiterated Microsoft's stance that the company does not plan to enter the business applications market for large corporate customers in the near future.

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"These are sales that take a lot of time and resources," Ayala said. "Even for the midmarket, you don't enter them over night...It will take years for us to be big in the midmarket."

Microsoft attained its stature largely through sales of software targeted at individual users and departments within companies. More recently, Microsoft has been moving to address the so-called midmarket of moderate-size companies.

That testimony falls in line with the argument being put forward by the U.S. Department of Justice, which earlier this year filed suit to block Oracle's hostile takeover bid for PeopleSoft. The government is charging in U.S. District Court here that a merger of the two companies would cause harm to the competitive balance in the market for software that companies use to run operations such as finance and human resources.

Other witnesses Thursday included a vice president at Fidelity, a former chief information officer at retail giant Gap and an executive at Bank of America.

On Friday, Oracle plans to wrap up the third week of the trial--and its first week of presenting its side of the case--with testimony from Ron Wohl, head of its applications business, and Safra Catz, co-president of the company.

Testimony in the trial is expected to conclude in the middle of next week.

Ayala noted that Microsoft's "eyes have been bigger than its stomach," in some instances where it has sought to expand its presence to new product areas and new countries. He expressed concern that the company's partners are pushing for greater expansion but that Microsoft does not yet have the level of support needed to adequately service customers in some new areas.

Also, in an e-mail sent in March to eight Microsoft executives, Ayala stressed the need for the company to move slowly and deliberately in its expansion.

"I do believe that a real part of the problem today is that there are no boundaries, so everyone seems to believe we should go for a lot of things, including (geographic) expansion in all big markets, multiple lines in more countries than we can afford, etc...(let's) go more gradual," the e-mail said.

The role of outsourcing
Other testimony Thursday looked at the range of choices that a CIO has among enterprise business applications vendors.

Oracle, aiming to persuade Judge Vaughn Walker that a high level of competition exists, brought up the roles of outsourcing and smaller software specialists. Its goal was to demonstrate that companies such as Fidelity, which provides business outsourcing services, compete against the Big 3 business software makers: Oracle, PeopleSoft and SAP.

The Justice Department is arguing that those three are the only significant competitors--meaning that Oracle's acquisition of PeopleSoft would leave insufficient competition.

As its first witness of the day, Oracle called Michael Sternklar, an executive vice president at Fidelity and former head of the human resources business with Fidelity Employer Services. (FESCo).

Sternklar testified that Fidelity competes with other outsourcing companies in about 50 percent of its contract bids. The rest of the time, Fidelity is competing against a prospective customer's plans to address its software needs in-house, with either proprietary software or applications from a vendor such as PeopleSoft or Oracle.

He said the merger would not affect the competitive landscape, given that Fidelity and other outsourcing companies are in the market, offering customers a wide range of potential sources for software and related services.

Competitive gap
Later in the day, Oracle called on Ken Harris of Retail.In.Genius, who earlier had served as CIO at the Gap and held other high-level IT positions at Nike and PepsiCo. Retail.In.Genius offers consulting in enterprise application systems software.

Harris, hired two months ago by Oracle to consult on the case, said vendors who specialize in a particular area are always part of the technology mix at companies. During the trial, Oracle has noted that these more focused vendors provide competition in the market, alongside companies that offer a software package, or one-stop shop.

"Very often, the driver of the deal is one piece out of the whole thing, and it varies from company to company and can change from one year to the next," Harris said.

Listing strategies he has used to pit competing vendors against one another, Harris described one case in which he seated competing vendors in two rooms separated only by a glass partition.

"I had them seated behind the glass walls so they could see each other," Harris said in animated tones.

After hearing Harris' various techniques, Judge Walker asked: "Why would you want PeopleSoft to go away? You would have one less vendor to put in that other room behind the glass wall."

Harris responded that withholding a decision to purchase software from the one vendor left in the room is a "viable" and "effective alternative" for getting the price he ultimately wants.

Hired guns
The judge also took note of Harris' relationship with Oracle, referring to him as a "paid fact witness." When asked outside the courtroom whether the judge's comment may reflect a disregard of Harris' testimony, Oracle's attorney Dan Wall said: "There are a lot of paid fact witnesses in this case. Microsoft's Doug Burgum, PeopleSoft's Rich Bergquist--all have an economic interest in this and were witnesses. (Harris) is an individual with a business to run, and he helped us out for two months with our case and should be paid for his time."

Wall said it's common to use witnesses who are paid. But attorney Renata Hesse, chief of the Justice Department's networks and technology division, said the use of paid fact witnesses happens occasionally--when a party has difficulty finding customers willing to testify as witnesses.

And in the afternoon, Brian Mearns, personnel service delivery director for Bank of America, took the stand to outline how his company had decided to outsource aspects of its human resources work. Oracle called Mearns as a witness to show how a large company with complex needs had other choices for its human resources software and department than upgrading its latest version of PeopleSoft.

BofA outsourced the $21.9 million contract to Fidelity, which currently is relying on Oracle software for its human resources work. The Justice Department contends that outsourcing firms will still need to rely on the technology providers such as Oracle, PeopleSoft and SAP, thus reducing competition if PeopleSoft is eliminated.

As the day wrapped up, Oracle attorney Wall made a motion for the judge to dismiss the case, a standard legal move by defendants. Wall had to wait for the Justice Department to call its last witness, before it was able to make such a motion. Attorneys in the case expect the judge to wait until the trial concludes before issuing a decision.